Debit Card

The Debit Card

Think of a debit card (sometimes called a check card) as very similar to a reusable blank check from your checking account. When you buy something using your debit card, it’s really the same as writing a check for the item—because when the merchant swipes your debit card, they pull the money out of your checking account on the spot.

THE DEFINITION
A plastic card that enables the holder to withdraw money or to have the cost of purchases charged directly to the holder’s bank account. –Princeton University

Debit card benefits

A debit card gives you just about all the benefits of a credit card without the danger of falling into high-interest, long-term debt. There are other benefits.
• You can make purchases almost anywhere
• You can use it as an ATM card
• There are no fees to use it
• It is safer than a credit card
• It is safer than cash

SMART MOVE

If you lose your debit card, report it right away. If you report it promptly, banks will usually replace any funds that have been illegally drawn from your account.

Make purchases anywhere

You can make purchases using a debit card almost everywhere, because most merchants who take credit cards also take debit cards. When a merchant swipes your debit card, the money is simply deducted from your checking account immediately.

Access to your cash without an ATM

Debit cards can also act as sort of an ATM card—you can withdraw cash with your debit card at supermarkets and other locations. When you withdraw cash at a store with your debit card, the money is deducted from your bank account.

SMART MOVE

If you’re making a debit card purchase at a store, and you want cash back, first ask to make sure there’s no fee. Usually it’s free.

No fees

Most banks let their customers use debit cards for free. You’ll still be charged fees for overdrafts, or for other mismanagement of your card, but you won’t be charged for simply using the card to make purchases or withdraw cash. This is another way a debit card is similar to a blank check. Your bank typically doesn’t charge you for the privilege of writing checks either—unless you bounce them.

Safer than a credit card

Using a debit card gives you one big advantage over a credit card: You don’t have to worry about racking up big debt that you’ll have to pay later, at really high interest rates. That’s because it’s simply not possible to rack up big debt on your debit card, they way you can with your credit card. Your bank won’t let you.

When you buy something on a credit card, it’s the credit card company that’s paying the merchant. You’re just promising to repay the card company for the loan (or at least part of it) when they send you the bill. When you use a debit card, on the other hand, the bank isn’t paying anything—you are, right out of your checking account.

21 debit credit sign post

Safer than cash

A debit card is safer than carrying cash too.

It’s not as easy for a robber to get at your money when it’s a piece of plastic that requires a Personal Identification Number to access.

SMART MOVE

Always check your bank statement for fraudulent debits, even if you haven’t lost your card. Debit card numbers are sometimes stolen from retailers where you’ve used your card.

Danger 1: Don’t bounce checks

Because your debit card will be tied to your checking account, it can create the same danger as writing checks can. If you mismanage your debit card, you can bounce checks and get slapped with big overdraft charges. Remember, when you use your debit card at a store or online, that money is pulled immediately from your checking account.

If you don’t track these payments and know exactly how much money is in your account at any given moment, you run the risk that when someone later tries to cash a check you’ve written, the money won’t be there—and your check will bounce.

SMART MOVE

Try to keep a minimum of a few hundred or even a thousand dollars in your checking account. If you lose track of your spending, you still won’t bounce a check.

Danger 2:
Overdraft fees

And there’s another debit-card danger similar to bouncing a check. If you have $200 in your checking account and try to spend $230 at a store, your bank might charge you an overdraft fee for simply trying to spend more than is in your account. It’s the same as bouncing a check, but without the check.

These problems are so common, in fact, that banks now make more money on overdraft fees—from debit cards and bounced checks—than they make charging penalty fees on credit cards.

SCARY BUT TRUE

Banks in 2009 earned a whopping $37 billion in fees to their customers for bounced checks. That’s billion!

Danger 3: Overspending

A debit card is similar to a credit card (and an ATM card) in that it gives you access to money anywhere, anytime. Nearly every merchant will gladly take your debit card as payment, meaning you’ll find it very easy to spend money everywhere.

Be careful.

22 sticker shock lady shopping bags
23 check register half

TIP: Look at your check register

It’s smart to review your checking account regularly, so you always know how much you have available to spend. This means frequently looking at your check register—and, of course, recording all your transactions in it.

It also means reviewing the monthly statements your bank will send you and balancing your checkbook—to make sure your balance and other account details are always accurate and up to date.

TIP: Robbie’s Receipt Rule
Part 2

You won’t have to worry about bouncing checks as long as you make a habit of recording every time you make a purchase or withdraw cash using your debit card.

One idea is to use your author Robbie’s routine for ATM withdrawals—anytime you get cash from an ATM or buy something using your debit card, tuck the receipt into your wallet or purse, but leave it sticking out and very visible. Then, when you’re home and can get to your check register, grab the receipt and record your purchase, along with your new account balance.

But never remove those receipts from your wallet or purse until you’ve recorded the transaction in your check register.

23 receipt

TIP: Be principled

You can enjoy the convenience of your debit card without overspending and getting into money trouble by developing a healthy relationship with money.

Here’s where all of the principles you learned in the first section will come into play—principles like Protect Monday Me, Avoid the Spending Rip Current, Dodge the Ad Barrage, and Know Your Whole Money Picture.

POP QUIZ

What is the advantage of a debit card over a credit card?

QUIZ ANSWER
An advantage of debit cards over credit card is that you can’t rack up debt.

Debit card recap

When you’re able to apply the lessons from the Principles section of this website—when you know your whole money picture and can stay in your money stance—having a debit card won’t pose any financial danger to you. You won’t think of the card the way so many people unfortunately do—as a license to spend more money. Instead, you’ll think of your debit card (just like your ATM card and credit card) simply as a convenient tool in Your Money Kit that can make your life easier.

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